Building Safety Act 2022: Building liability orders

What are building liability orders?

The BSA allows the High Court at its discretion to make a building liability order if it considers it “just and equitable” to do so. These orders may extend "relevant liability” to “associated” entities such as sister and parent companies. The effect of building liability orders can be compared to that of parent company guarantees, with the substantial caveat being that the parent company is unable to negotiate the terms of a building liability order.

Relevant Liability under the relevant provisions of the BSA is defined as liability that is incurred:

• Under the Defective Premises Act 1972.
• Section 38 of the Building Act 1984.
• As a result of a building safety risk.

Please review our blog on liability under the Defective Premises Act 1972 for details of liability thereunder.

Section 38 of the Building Act 1984 is a new cause of action which applies to any buildings for damage suffered as a result of a breach of Building Regulations. Although the date of the Act might suggest otherwise, section 38 of the Building Act 1984 was never previously brought into force but will be brought into force by the BSA.

In relation to the final criteria of Relevant Liability, a building safety risk is defined as “a risk to the safety of people in or about the building arising from the spread of fire or structural failure”.

Building liability orders: associated body corporate

Associated body corporates for the purpose of building liability orders are body corporates where:

• one of them controls the other; or
• a third body corporate controls both of them.

Although this appears to describe a simple sister and parent company relationship, the BSA extends what is meant by ‘control’ to body corporates (A) which have power indirectly to ensure that another body corporate (B) conducts its affairs in accordance with A’s wishes and to where A is entitled to acquire possession of shares or voting rights as well as actual possession. In doing so the BSA effectively pierces the corporate veil to prevent developers from escaping liability in relation to the relevant liabilities.

To satisfy the criteria of an associated body corporate, A must have been associated with B any time after the commencement of the works to which the relevant liability was incurred and before the building liability order is made. As such, the sale of projects or companies will not diminish the High Court’s entitlement to grant a building liability order against both sellers and purchasers. We are therefore likely to see greater weight given to due diligence in the purchase of companies which have been involved in the construction of projects which could incur the relevant liabilities.

Building liability orders: information orders

Any person making or intending to make an application for a building liability order under the BSA is also permitted to make an application for an information order. Granting the order will require a specified body corporate to give specified information relating to any associated body corporates. This will allow claimants to understand the corporate structures in place which could in turn assist them in obtaining a building liability order.

Building liability orders: just and equitable

The BSA does not provide any guidance on what will be categorised as “just and equitable and as with the case with the defence of a breach of Convention rights which applies to liability under the Defective Premises Act 1972, we will have to wait until this is applied by the Courts.

If you have any queries or would like to discuss any of the points raised in this blog, please contact Brandon Pizaro in our Real Estate team. 

For more updates on the Building Safety Act 2022, please read our latest blogs:

• Building Safety Act 2022: Changes to the Defective Premises Act 1972 
• Building Safety Act 2022: Changes to the construction products regime & new potential causes of action against manufacturers